(Repeats Friday column)
By Scott Haggett
CALGARY, Alberta, Jan 11 (Reuters) - Shares of Canadian oil producers, hard hit by crashing commodity prices and the credit crunch, have staged a quiet comeback since bottoming out in November and observers say the takeover chatter that roiled the market late last year may return as conditions improve.
Plunging oil prices, which have retreated by more than $100 a barrel since peaking above $147 last July, have forced oil producers to retrench as their cash flows dwindle and credit markets remain tight.
That's kept takeovers to a minimum because would-be buyers can't access the financing needed to pay for acquisitions and can't pay for them out of pocket as lower commodity prices chop cash flow and profits.
But there are signs the credit crunch may be easing. Several energy firms successfully placed debt over the past few weeks, raising the chances that big oil companies may find the cash to take advantage of weakened competitors and snap up attractive -- and inexpensive -- properties.
"I think we will see some (merger and acquisition) activity in the industry this year," said Lanny Pendill, an analyst with Edward Jones.
"A lot will probably be done on a smaller scale. Companies that are well positioned with cash and strong balance sheets ... and that have gaps they need to fill may turn to acquisitions."
The pessimism that hit the industry as prices plunged has abated somewhat. The Toronto Stock Exchange's energy index, which rose to a record 470 points in June, bottomed at 176.4 in late November, its lowest level since October 2004.
It has since rebounded 28 percent, closing Friday at 225.12 points and handily surpassing the 16 percent gain by the Toronto Stock Exchange's composite index over the same period.
TAKEOVER BUZZ
The downturn in the industry's fortunes has prompted project cutbacks, lower spending and plenty of takeover buzz, including last's month's speculation that French oil major Total SA TOTF.PA was poised to offer nearly C$20 billion ($16.8 billion) for Nexen Inc NXY.TO to gain its oil sands and North Sea holdings.
The rumor fizzled, but it did lead some to question how long Canada's oil companies could remain independent, particularly when the cash-rich international majors could acquire them and add their reserves for less than it would cost to find the oil themselves.
"It's buy versus build," said Phil Skolnick, an analyst at Genuity Capital Markets. "Buying is probably a better proposition than building because you get immediate impact, cash flows and reserves."
The foreign majors could be tempted to look to big oil sands players, like Suncor Energy Inc SU.TO or Canadian Natural Resources Ltd CNQ.TO and Nexen, whose shares are at less than half their 52-week high and are widely held.
But some observers caution that these firms come with multibillion-dollar price tags and the big oil companies, indeed all the oil companies, may want to husband their cash until commodity prices settle.
"After what we've gone through in the past months, the confidence level in forecasting future cash flows is at an all-time low," said Martin Molyneaux, an analyst at FirstEnergy Capital.
Canadian investors are more likely to see deals where bigger companies look to get a foothold in promising new discoveries like the Montney and Horn River gas regions of northeastern British Columbia or the Bakken light oil play in southern Saskatchewan by snapping up smaller firms that have suffered more in the downturn.
"Valuations of (junior and intermediate sized companies) have come down so significantly that the larger companies will have to take a look," Skolnick said.
($1=$1.19 Canadian) (Reporting by Scott Haggett; editing by Rob Wilson)